INTERNATIONAL FINANCE

International Finance

International Finance

Introduction

The study is related to the international finance which particularly focuses on the imports and exports of United Kingdom in relation to its exchange rate which is an important phenomenon to study as it relates to the balance of trade in a country. The imports and exports of a country should be managed in such a way that it should not exceed with its exports which can affect its exchange rate; however, if this happens then the balance of trade of a country will be in negative which will affect the whole economy. Therefore, it is important that the effects of polices of United Kingdom for imports and exports should be designed in a way that can make the exchange rate stable in UK.

Research Questions

- Is there an effect of imports on exchange rate in United Kingdom?

- Is there an effect of exports on exchange rate in United Kingdom?

Hypotheses

H o 1: There is an effect of UK imports on its exchange rate.

H 0 2: There is an effect of UK exports on its exchange rate.

Discussion

Foreign trade that comprises of imports and export have a significant impact on exchange rates of various countries, as due to the fluctuation in the exchange rates, the price ratio of exports and imports get affected, causing a change in domestic economic situation, as well as affecting the competitiveness of firms that is the profits of enterprises (Brezina, 2011, 8-79). Using the exchange rate, the exporter country compares its own cost of production to world market prices. This makes it possible to reveal the result of foreign trade operations of individual enterprises and the country as a whole.

Sharp fluctuations in exchange rates strengthen the international economic instability, including monetary and financial relations, cause negative social and economic consequences as the loss of one is the winnings of other countries. In particular, the devaluation of national currency allows exporters to country like United Kingdom to lower their prices in foreign currency, receiving the award in the exchange of the proceeds of foreign currency on the appreciated cheapened national, and sell products at prices below the world average, which leads to their enrichment at the expense of their material losses the country (Barro, 2008, 15-81). But while the depreciation of the currency raises the price of imports of UK, as for the same amount in its currency foreign exporters are forced to raise prices, which stimulates their growth in the country, reduction of imports of goods and the development of national consumption or production of goods instead of imported ones (Hartmann, 2003, 53-76).

Import and export affect exchange rate as a major factor. In the view of economics, the currency appreciation of UK means that the currency devaluation of other country, export trade during a time when the same goods in the importing country for case in point, UK need to show more of the national currency, so the importing country that is UK may turn to seek other countries of goods is not favorable to their ...